The Volokh Conspiracy » Bankruptcy for States
"[S]tate bankruptcy could even permit a restructuring of the Cadillac pension benefits that states have promised to public employees.
These are often “vested” under state law, and in some states, like California, are protected by the state constitution.
Under state law, little can be done to adjust them to more reasonable amounts.
Although the law is somewhat murky, there is a strong argument that bankruptcy could provide for an adjustment of these obligations.
Unless the state’s “guarantees” were construed as a property right protected by the Takings Clause of the Constitution (which is doubtful if there is no collateral or other indicia of a property right), the federal bankruptcy law would trump contrary state law under the Constitution’s Supremacy Clause."